Author Archive for Jeff Deist

More on Washington Post Columnist EJ Dionne and the Austrian School

3020281035_4fb652b541_bThis is a very nice takedown of E.J. Dionne and his recent bizarre assertion that the GOP is somehow in thrall to Austrian economics.  The author not only elaborates on the silliness behind Dionne’s pined-for “normal, bipartisan legislation during the Keynesian heyday,” but also blasts David Frum’s nonsensical assertion that the Austrian school somehow encourages conservative hostility toward intellectuals:

Back in 2012, Bloomberg’s Josh Barro and CNN and Newsweek contributor David Frum similarly charged that conservatives’ embrace of Austrian ideas is to blame for “how hostile the conservative movement has become to intellectuals.”  Responding in a piece for ZeroHedge, James Miller of the Mises Institute of Canada, disdains the notion of a great Austrian groundswell among conservative politicians.

If Frum, with all his political credentials, can show me another true blooded conservative that has read through Human Action or Man, Economy, and State, I am all ears.  The fact remains that traditional conservatives aren’t brushing up on their Mises when they aren’t attending Tea Party rallies or asking their Congressman to nuke Iran into smithereens.
Let me guess: Frum considers himself (sniff) one of those trodden-upon intellectuals.

The author also provides a nice refutation of Krugman’s tired “where’s the inflation” argument:

Much is made of the fact that Austrian warnings of hyperinflation have not come to pass. Nobel Prize winner Paul Krugman calls on the Austrian School to admit the errors of its way in light of the supposed economic recovery now underway. In fact, as CNBC Senior Editor John Carney points out, events have unfolded in perfect compliance with Austrian theory.

Krugman is right that many self-styled Austrian economics mavens predicted high inflation. The Austrian model, however, does not.
Part of the confusion lies in the well-known definitional dispute over what is meant by the term “inflation.” In general, most people and economists use inflation to mean “rising prices.” Austrian economics, however, treats rising prices as a contingent phenomenon of an increase in the money supply.
In other words, Austrians will insist that any increase in the money supply is inflation—as a matter of definition. But Austrian economics does not insist that this kind of inflation necessarily results in higher prices.

Of course the Austrian movement is growing, just not in the way Dionne imagines.  Does he really think the political class, left or right, will embrace economic principles that reduce political power?  Then again, maybe he does.  Washington is full of incredibly naive dunces when it comes to the real nature of politics.

Bernanke’s Payoff: The Comments Section Tells the Real Story

Bernanke is absolutely savaged in the comments to this CNBC video detailing his $250K speaking fee (now that he has joined the “private” sector). This is a family blog, so we won’t reprint any of them here. But the comments show how laughably out of touch with reality our political/banking class really is. NOBODY believes the official story anymore. Central bankers are seen as deeply harmful, if not criminal.

Fred Sheehan: Mises was Right

Fred Sheehan discusses whether the Fed has passed the point of no return with respect to credit expansion:

The central teachings of Austrian economics are commonly understood. It is the hieroglyphics called “economics” at colleges today that is rubbish. It will join the ash heap of history.

The Austrians taught – and do teach, on isolated campuses – that an accumulation of debt in excess of what can be paid back has consequences, either in default or inflation. To someone dropping in from 1910, that might seem so fundamental, it isn’t even worth mentioning. Oh, what that out-of-date relic has missed.

Second, Ludwig von Mises was right: “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” (Chapter XX: Interest, Credit Expansion, The Trade Cycle, § 8 , The Monetary or Circulation Theory of the Trade Cycle)

We may not have passed that point of no return in 2008, even though our recently retired Fed chairman, Simple Ben Bernanke, saved his skin by making that claim over and over. If not for his nationalizing America, he continually reminded us, “the world would have ended.” I think we have passed that point today. The central bank balance sheets absorbed enough bad paper (bonds, mortgages, CDOs, Maiden Lane) to assert the solvency of the world’s banking system by 2009. Having done nothing to restore the foundations of banking over the past five years, the central banks are in no position to absorb the “final and total catastrophe.” Their credit-ability is on borrowed time.

Mises Institute featured on Power Trading Radio

I discussed the Mises Institute, working for Ron Paul, and the growing Austro-libertarian movement on Power Trading Radio yesterday.

 

More nonsense about a rules-based Fed

220px-Marriner_S._Eccles_Federal_Reserve_Board_BuildingLarry Kudlow frets that Janet Yellen simply doesn’t understand the need for a rules-based Fed model to guide the money supply and interest rates.  Ms. Yellen, Kudlow informs us, should “limit her focus to stable prices and a reliable King Dollar.”

“Stable prices”. “King Dollar.” This is rich. I wonder if Asian central bankers would agree with Kudlow’s characterization of the dollar, and whether he’s visited a supermarket lately (he states with a straight face that inflation is 1%).

Here I thought Yellen’s biggest problems might include the wholesale devaluation of the US dollar; asset markets hopelessly addicted to endless rounds of QE; upward pressure on long term interest rates; or staggering future deficits arising from America’s unfunded entitlement liabilities (deficits even the Fed will have a hard time papering over). Apparently, however, it’s a lack of “rules” at the Fed that should keep the new Chairman up at night.

This fetish for rules-based Fed policy (e.g. inflation targeting) and obsession with the Taylor Rule serve as the rightwing, “free market” response to substantive and populist criticism of the Fed itself.  We don’t want to end the Fed, the Kudlows tell us, but we do want to keep it in check and maintain the dollar’s lofty status.  It just needs a firm hand.  After all, as Mr. Greenspan famously told Ron Paul in 2005, the Fed can essentially mimic a gold standard.  But how long  has it been since the Fed restrained itself in the face of public and political pressure (think Volcker)?  And can central banks truly be constrained by rules at all?

We shouldn’t be too hard on Mr. Kudlow.  As a former Fed staff economist and later managing director at Bear Stearns, he hardly can be expected to offer more than gentle criticism of the institution that made him rich.  And he’s well known as a permabull, using his pulpit at CNBC as a de facto informercial for equity markets.  But one has to wonder whether he really believes that tinkering with so-called rules based monetary policy can keep the dollar from going around the bend.

Since Mr. Kudlow effectively supports setting prices (interest rates) and quantities of a particular commodity (money), I wonder what his objection would be to having a quasi-private group of individuals determine how many bushels of wheat should be produced in 2014?  Or the hourly wage of a factory worker at Ford? Or the retail price for an iPhone 6?

Interesting questions, but I’m sure Kudlow would say “Oh that’s different.”

Yes, it snows in Auburn…

A little:

Jan. 2014 snow

 

 

Monetary Keynesianism can’t save shopping malls

This article from CNBC paints a pretty gloomy picture.  Malls are dead.  Retail space is wildly overbuilt.  The poor and middle class have no cash– and too much debt.  Who really needs another shirt or ipod or kitchen device at this point? Trendy suburban brands like Lululemon may grow for awhile (mostly selling to households making 100K+), but niche stores can’t replace the Woolworths, Montgomery Wards, Sears, JC Penneys, etc.  Huge vacant malls are the depressing evidence of the bust caused by the engineered boom.
One type of store is booming, however: high-end pawn shops. As Lew Rockwell points out, pawnbrokers perform the important role of lending without increasing the money supply.